U.S. Fidelity & Guaranty Co. v. Arrington

• Decision Date: 06 December 1971
• Docket Number: No. 46428,46428
• Citation: 255 So.2d 652
• Court: Mississippi Supreme Court
• Parties: UNITED STATES FIDELITY & GUARANTY CO. et al. v. Fox ARRINGTON et al.

Page 652

255 So.2d 652

UNITED STATES FIDELITY & GUARANTY CO. et al. v.Fox ARRINGTON et al.

No. 46428.

Supreme Court of Mississippi.

Dec. 6, 1971.

Watkins & Eager, W. Thad Cochran, Jackson, Bryant & Stennis, Gulfport, for appellants.

White & Morse, Floyd & Floyd, Gulfport, for appellees.

RODGERS, Presiding Justice.

This appeal is from a judgment of the Circuit Court of Harrison County against the appellant-insurance companies and in favor of Mr. Fox Arrington and Mrs. Jo Drake Arrington in the total amount of $30,000.00 and in favor of Hancock Bank in the total amount of $3,524.74.Each of the three insurance companies was to pay one-third (1/3) of each award.

Mr. Fox Arrington and Mrs. Jo Drake Arrington, plaintiffs-appellees(hereinafter referred to as the Arringtons) were owners of a lumber and building supply business known as Service Lumber Company located in Gulfport, Mississippi.The Arringtons sold the Service Lumber Company to Mrs. Irma L. White on April 22, 1968, retaining a vendor's lien on all of the assets of the business.The contract of sale required the purchaser to maintain adequate liability insurance and sufficient fire insurance to cover the Arringtons' security interest.Pursuant to this provision the fire insurance policies, upon which this suit is brought, were issued by the three appellant-insurance companies in the amounts of $18,333.00 for two and one policy being $18,334.00.This made a total insured value of $55,000.00.These policies were issued through Mr. Robert Portwood, agent for the three insurance companies, with the Arringtons named as loss payees.Attached to and made a part of the policies was a 'Lumber Form' which set out the coverage of the policies.According to the attached form the following assets were covered:

'. . . buildings, furniture, fixtures & tools, stationery and supplies, equipment, lumber, building materials and other stock usual to a Retail Lumber Yard. . . .'

On May 8, 1968, Mrs. Irma L. White conveyed the Service Lumber Company and all property purchased from the Arringtons to a corporation known as Mississippi Custom Supply, Inc., formed by herself and her husband, Mr. Robert S. White.In December, 1968, the Mississippi Custom Supply, Inc., entered into a field warehouse arrangement with St. Louis Terminal Field Warehouse Company, whereby a field warehouse was established on the premises and non-negotiable warehouse receipts were issued representing lumber and building material and other inventory.Mississippi Custom Supply, Inc., used these receipts as security to obtain a loan from the appellee, Hancock Bank.Subsequent to this loan, the Hancock Bank and the St. Louis Terminal Field Warehouse Company were added to the three insurance policies as additional loss payees.

Mississippi Custom Supply, Inc., paid the monthly installments to the Arringtons from May, 1968, through March, 1969, and a partial payment was made in June, 1969.On July 18, 1969, the Arringtons repossessed the business under the terms of the vendor's lien.Mr. Fox Arrington began taking inventory and collecting accounts receivable.He was assisted by Mr. Jerry Bullock, who was manager of Mississippi Custom Supply, Inc., at the time of the repossession, and was owner of 49 1/2% of the stock of the Company.

On July 18, 1969, or the following day, Mr. Robert Portwood, agent for the three insurance companies, advised Mr. Arrington, pursuant to his request, that the three insurance policies were in full force and effect with the premiums thereon paid in advance for three years from April 24, 1968.On July 25, 1969, Mr. Portwood wrote Mississippi Custom Supply, Inc. that the three fire insurance policies were in full force and effect.

At the direction of Mr. Robert S. White, whom Mr. Arrington would not allow on the premises, Mr. Jerry Bullock, who was assisting Mr. Arrington in taking inventory, removed the three fire insurance policies from the safe-which would not lock-at the Mississippi Custom Supply, Inc. office and delivered them to Mr. Robert Portwood for cancellation.This was sometime between July 25, 1969, and July 31, 1969.Mr. Portwood admitted and no written notice of cancellation was given the loss payees.

Pursuant to the filing of bankruptcy proceedings on July 31, 1969, by Mr. Robert White, a hearing was held on September 26, 1969, at which time the Arringtons now contend that they first knew of the cancellation of the fire insurance policies.Following the discovery of the cancellation, the Arringtons notified Mr. Portwood that they considered the cancellation void as to their right to recover for losses sustained as a result of Hurricane Camille having struck the Mississippi Gulf Coast on August 17, 1969.Proof on loss forms were requested by the Arringtons but to no avail, as neither the three appellant-insurance companies nor their agent, Mr. Portwood, replied.

At the trial of the case Mr. Arrington testified to values of the buildings, which values were in excess of those set out in the proof of loss forms which the Arringtons had obtained from other sources and filed with the insurance companies.When all of the testimony was completed, the court allowed a peremptory instruction for the Hancock Bank and directed a verdict in its favor for the amount of their note plus interest and attorney's fees.The court allowed a peremptory instruction for the Arringtons on liability, because, in the opinion of the court, the policies were not cancelled as far as the lienholders are concerned.

Upon these facts the issues presented to this Court are: (1) Was the delivery of the policies for cancellation by Mr. Bullock done in the capacity of agent for the Arringtons, and (2) Was the cancellation effective in cutting off any rights of recovery which existed in the loss payees.

Based upon the case of Pan American Petroleum Corporation v. Bardwell, 203 Miss. 833, 33 So.2d 451(1948), the burden of proving an agency relationship was upon the parties asserting it-in this case the insurance companies.We believe that the insurance companies failed to meet this burden for the following reasons: (1) At the time of the repossession by Mr. Arrington, Mr. Bullock was the general manager of Mississippi Custom Supply, Inc. and owner of 49 1/2% of the stock; (2) During the time Mr. Bullock was helping take inventory he was not being paid by Mr. Arrington; and (3) In the presence of Mr. Portwood, the insurance agent, Mr. Bullock was directed by Mr. Robert White, Vice President and former general manager of Mississippi Custom Supply, Inc., to remove the insurance policies from the safe-which would not lock-located at the business and give them to Mr. Portwood for cancellation.

In determining whether or not an agency exists the question is ordinarily one of fact to be determined by the relation and, more importantly, the intention of the parties.3 Am.Jur.Agency§ 21, 430.

It is not alleged that Mr. Bullock was acting as agent for Hancock Bank; therefore, this issue does not concern Hancock Bank.

In answer to the second question, we find that Section 5695,Mississippi Code 1942 Annotated (1956) provides for the 'standard' or 'union' clause to be inserted in fire insurance policies.That statute reads as follows:

's 5695.Mortgage clause.

Each fire insurance policy on buildings taken out by a mortgagor or grantor in a deed of trust shall have attached or shall contain substantially the following mortgagee clause, viz.:

'Loss or damage, if any, under this policy, shall be payable to (here insert name of the party), as . . . mortgagee (or trustee), as . . . interest may appear, and this insurance as to the...